Agenda

Latest news for Australian directors.

Getting the most out of your strategy off-site

The annual two-day strategy off-site has become almost ubiquitous on the governance landscape. But do off-site strategy days work and can they be more effective?

It’s an important question for boards and executive teams. For many boards, the off-site is their deepest dive into strategy and a critical part of their strategy governance.

British academics considered the value of off-sites in the paper, Off to Plan or Out to Lunch? Relationships between Design Characteristics and Outcomes of Strategy Workshops, published in the British Journal of Management.

They found that nearly four in five organisations in the UK use workshops for strategising and they are a key part of executive calendars in the US and France.

The authors wrote: “Many organisations view strategy workshops as a means of stepping back from the daily grind to consider wider issues critical to their future. Despite their popularity, we know little about the outcomes of these events or the factors that contribute to their effectiveness.”

Put another way, how do boards know if the strategy off-site succeeds?

After surveying participants in 650 workshops, the authors concluded that many off-sites leave little lasting impression on the organisation. “Where workshops do influence firms’ strategic direction, this is because the formal event provides a rare forum for examining and changing strategy content – for example, refining the organisation’s goals or mission, adjusting its strategic plan or communicating a new vision.”

Off-sites have other benefits: they provide interpersonal outcomes by bringing people together and creating a shared sense of purpose; and they have cognitive outcomes by helping people understand the firm’s strategy direction. For boards, the opportunity to spend more time with executives and hear the strategy in detail can be highly beneficial.

The authors hypothesised several predicators of off-site success:

1. The clearer the workshop objectives, the more positive the perceived organisational outcomes, interpersonal outcomes and learning outcomes.
2. Workshops undertaken for the purposes of strategy implementation will be associated with organisational outcomes that are perceived more positively relative to workshops undertaken for strategy formulation purposes.
3. The greater the degree of workshop removal (from the firm’s day-to-day work), the more positive the perceived learning outcomes.
4. The greater the range of stakeholder groups involved in workshops, the more positive the perceived interpersonal outcomes.

Although the findings appear obvious, the research has important takeouts for boards when planning off-sites. Consider how the off-site’s objectives are communicated before the event; focus more on strategy implementation than strategy creation at the event; ensure the off-site is sufficiently detached from regular activities; plan the duration and scheduling of meetings; and invite a variety of stakeholders to challenge strategies and any biases.

Consider brand equity as another executive pay factor

Boards usually view an organisation’s brand from a strategy, corporate responsibility or risk-management perspective. Less considered is the link between brands and executive pay.

Firms with stronger brands typically pay their executives less than other firms, according to a new academic paper, Employee-based brand equity: why firms with strong brand equity pay their executives less. The authors, London Business School professors Nader Tavassoli and Rajesh Chandy, and Texas A&M University professor Alina Sorescu, studied 2,717 top executives over 11 years.

They wrote: “Executives value being associated with strong brands and, therefore, accept substantially lower pay at firms that own them. Consistent with identity theory, this effect is stronger for CEOs compared to other top executives, as well as for younger executives.

“Moreover, [practitioners] should make use of strong brands in pay negotiations that are typically viewed as being outside the realm of marketing.”

The authors argue that strong brands help shape executive identity and that failure to recognise the relationship between brand equity and executive pay can “result in potentially erroneous conclusions on the highly charged topic of executive pay”.

“If top executives are prepared to accept lower pay for the privilege of running firms with strong brands, then pay levels can be grounded, at least to some extent.”

Other academic research has shown that firm size has the largest correlation with executive pay: the bigger the firm by market capitalisation, the more pay the CEO wants to run it. The most valuable firms often have the most valuable brands. CEOs might be willing to accept lower pay in firms with strong brands because they see greater potential to grow the business and share in the upside through realised long-term equity incentives.

Nevertheless, the research indicates that a strong brand may do more than position the firm and sell products: it has internal benefits on staff identity and possibly on executive pay.

Rob Elliott recognised for expertise and leadership

Rob Elliott FAICD has been appointed an Honorary Adjunct Professor at Macquarie University’s Graduate School of Management (MGSM).

He is the executive director of the AICD’s Governance Leadership Centre (GLC) and was previously general manager of policy and advocacy, general counsel and company secretary at the AICD.

Elliott has been responsible for the development and advocacy of policy for Australia’s company directors in fields including corporate governance, law, reporting, remuneration, diversity and corporate social responsibility.

He was instrumental to the creation of the GLC in 2014 – a think tank for world-class governance, committed to driving innovation across governance and leadership and championing the latest thinking on issues affecting Australia’s businesses.

The GLC engages thought leaders from a wide range of boards, business groups, investors, academia and government on the practice of governance, board practices and the capacity for governance to drive organisational performance.

Over the past 25 years, Elliott has lent his leadership and expertise in corporate governance to a range of organisations – as chair of the Global Network of Director Institutes (GNDI) Policy Committee and member of the ASX Corporate Governance Council, Business Coalition for Tax Reform and ASIC Business Liaison Committee.

Elliott holds a Bachelor of Laws/Commerce from the University of New South Wales and is a Fellow of the Governance Institute of Australia.

Delisting policy sends a message to boards

The implementation of a new policy to delist ASX-listed entities that have had their securities suspended continuously for three years is imminent.

The ASX proposed in 2013 that it automatically delist long-term suspended entities. The policy change, introduced in January 2014, is effective from 1 January 2016.

The ASX said that when it proposed the change, the securities of more than 100 listed entities had been suspended. Seventy per cent of the securities had been suspended continuously for more than 12 months and a small number for more than a decade. It said the policy was designed to address issues in suspended entities that were “left in limbo” for too long.

It wrote in the consultation policy: “Security holders make the point that it is often better from their perspective if an entity with no immediate prospects is wound up and surplus assets returned to them.

“In addition to avoiding further value leakage for security holders through ongoing administration costs and directors’ fees, it may also enable them to crystallise a loss for tax purposes.”

This policy change sends a message to boards that govern suspended listed entities for too long, earning director fees along the way. Wind up the entity and give surplus cash back to shareholders, rather than burn through it on director and listing fees.

The move to delist suspended entities may be partly responsible for the rise in backdoor listings this year, as listed shell companies acquire the assets or shares of private companies, raise capital, relist on the ASX, and avoid being delisted.

• The policy is explained in ASX Listing Rules Guidance Note 33, under heading 3.4 (Automatic removal of long-term suspended entities).

The big question

Question

Are there any rules when postponing an annual general meeting (AGM) for public companies limited by guarantee?

Answer

The Corporations Act 2001 is applicable to public companies limited by guarantee, however, it contains very few rules in relation to adjourned meetings. The company’s constitution may set out a regime for adjournment. In the absence of such a regime, there is authority for the proposition that a meeting once duly called cannot be postponed by notice. It may, however, be adjourned upon assembling.

Except in unusual circumstances, the adjournment of a meeting once it has commenced requires member consent. If there is uncertainty as to whether the AGM has been properly adjourned, and there is still opportunity to do so, it would be possible to call a directors’ meeting to formally resolve to cancel the AGM and notify the members accordingly.